Thursday, November 29, 2012

My wife, the journalist Beatriz Silva, has been working on a
documentary about child poverty in Europe. It is a big project between several
television channels.
Each television channel makes a documentary and they share the films. She
worked for the Franco-German TV network, ARTE. It is a woderful piece of TV journalism and the part on poverty in Barcelona, in which Beatriz was especially involved, is especially disturbing. It shows the impact of the crisis on the most vulnerable sectors of society. The documentary was released last Monday and you can see it on the web for a few days in French and in German.

Monday, November 26, 2012

Yesterday the snap Catalan election that was called to give the Catalan president, the center-right nationalist politician Artur Mas, an overall majority, delivered a big electoral surprise as his party obtained 50 out of 135 seats in Parliament, losing 12 seats. Three temptative factors make help explain what happened, getting inspiration from behavioural economics:
1) Availability Bias. Mr Mas tried to capitalize on the mass demonstration of 9-11 in Barcelona, where a big crowd marched in favour of independence, by saying that he himself supported independence, changing the moderate trajectory of his party. Unfortunately, scientific calculations showing that the demonstrators were not 1.5 million but 600.000, and not a representative sample, and that they were marching for a variety of reasons, were not heeded.
2) Social Pressure. When a well organized minority is very noisy, herd behaviour pushes many people (even hitherto moderate politicians) to forget about doubts, uncertainties, and ideologies that embrace complexity.
3) Categories. Do we face huge social and economic problems in a very complex situation? Let's solve them using a category we think we know (a new nation state) and everything will be fixed...

Thursday, November 22, 2012

The center-left chooses on Sunday its candidate for the general election of 2013 in Italy. There are several candidates, and if no candidate reaches 50% of the vote, the two best may still go to another vote in some weeks time. The two favourites are the veteran Pier Luigi Bersani, secretary of the Democratic Party (the heirs of the old and very decent Italian Communst Party, who was refounded and adhered to the Socialist International after the collapse of the Italian Socialist Party of Bettino Craxi), and Matteo Renzi, the 37 year old Mayor of Florence. Renzi runs on a platform of political renewal, attacking the gerontocracy that dominates Italian politics. Bersani emphasizes his centre-left credentials. Unfortunately, I don't follow Italian politics close enough any more (I lived in Italy between 1995 and 1999), but two factors make me wish Mr. Bersani to win. First, I think Renzi is too young to lead a country with the problems of Italy, whereas I have always had great respect for the seriousness of the party that used to be the PCI (and enjoyed its dinners on Sundays in the Casa dil Popolo in Fiesole): if only all the aparatchiks in the world were like D'Alema or Bersani. Second, I have been following the almost desperate appeals of the veteran journalist Eugenio Scalfari in La Repubblica against populism and for an alliance between the center and the left that leaves the Berlusconi years forever behind. Scalfari does not exclude an alliance between Bersani and Monti after the election, and I also think this would be a very reasonable majority to guide Italy in the near future, and contribute to a more democratic and integrated Europe.

Wednesday, November 14, 2012

Acemoglu and Robinson (AR) summarize and expand their work (and their joint work with Simon Johnson -ARJ) for a wider public in "Why Nations Fail," one of the books in social sciences that has become more influential and has received more reviews by high caliber scholars in a short period of time. The thesis of this book is that the key to economic success are political institutions that avoid concentration of power and set up economic institutions that protect property rights and provide incentives for productivity enhancing activities by large sectors of the population and not only by an elite. They appropriately add to the usual emphasis of the New Institutional Economics on institutions that credibly commit to respecting property rights, an emphasis of the need for institutions to be inclusive, to invite the economic participation of large majorities.Political institutions are far more important than geography or culture to explain economic progress, according to AR. Examples include the diverse fortunes of East and West Germany, North and South Korea, or the city of Nogales (at each side of the border in the US and Mexico). Each pair shares geography and culture, but not institutions.

Other very interesting themes in the book are the exaggerated role that some academic advice gives to experts (I have sympathy for the arguments of the authors on the false ignorance of elites); the need for a certain level of centralization so that the there is a minimum amount of order and security; and the fact that the independence of colonies was not accompanied by a change in institutions and social structures.

A related phenomenon explained by AR is the reversal of fortunes in former colonies: lands that were rich in resources 500 years ago induced extractive institutions from colonizers, whereas poorer lands facilitated importing metropolitan institutions or the setting up of institutions where colonizers had increasingly equal rights. In their previous econometric work (with Johnson) they instrument poor institutions by settler mortality, thus obtaining an exogenous source of institutional variation, apparently fixing the endogeneity problem.

Reviews by Diamond, Subramanian, and Sachs have been critical with "Why Nations Fail." The polymath Jared Diamond accepts that institutions are important, but good institutions are concentrated in countries with a temperate climate, with access to sea (AR's response to Diamond and his replica are here). Jeffrey Sachsargues that contrary to the arguments by Acemoglu and Robinson, Nogales actually shows the importance of geography (being close to the US border; Mexican Nogales has ten times the size of US Nogales).

Subramanian shows graphically how China and India (the two most populous countries in the world) do not fit with the positive correlation between inclusive political institutions and economic growth. The response by Acemoglu and Robinson is that India has not been an inclusive democracy, and China will eventually decline. Other published reviews by William Easterly, Francis Fukuyama(Easterly and Fukuyama are both happy that AR address the big issues of development and institutional change instead of only minor issues common in recent research, such as the relationship between foreign aid and mosquito bed nets) and Martin Wolf are more laudatory, but also mention that AR simplify too much and too easily jump to conclusions in their book.

Relatedly, evidence on settler mortality used in their academic work by ARJ is disputed by Albouy in the American Economic Review (AER): he claims that the data used by ARJ is not representative of settler mortality during colonization and the results (that good institutions cause economic development) are not robust to the correct interpretation of the data. The response by ARJ can be found in the same issue of AER.

Earlier doubts about the research program devoted to finding clear links between specific institutions and economic development were raised by Chang (this article triggered a heated academic debate, which can be followed here) and Clark.

Institutions are probably important especially because they support exchange when the quid and the quo are separated in time, and promote cooperation and coordination in solving collective problems, which often involve dilemmas between equity and efficiency. But institutions are not easy to define, which makes falsifying theory difficult. Additionally, institutions are not good travelers, are costly and endogenous; are not the only determinant of growth or development; and co-evolve together with outcomes, random events, preferences and the environment. You cannot just inject good formal institutions in a country and expect it to suddenly become the paradise. AR, in their fascinating book, are right especially in one thing: solutions are never apolitical. If you want to change things, you should be ready to get involved in collective action, fail and stand up again.

Friday, November 9, 2012

Barack Obama won the re-election as US President, and the world is relieved by that (by the way, it's interesting that outside the US, many people supporting right wing causes such as the secession of rich regions under the leadership of right-wing corrupt elites, try to clean their reputation or their remorses by making sure that everybody knows that they would have supported Obama -what is the word to qualify this behavior?). But there are two other winners that deserve attention for social scientists.
One is Nate Silver, author of the Five Thirty Eight blog, who has a model to predict electoral results that correctly forecasted the result state by state. Now it's easy to praise Nate Silver, but I can because I did it in advance. I'm now reading his book "The Signal and the Noise", which has implications that go much beyond politics (more on it when I finish reading).
The other is Elizabeth Warren, the new senator for Massachusetts. This is good news for consumers, as Simon Johnson reminds us. As can be read in Wikipedia, Warren has long advocated the creation of a new Consumer Financial Protection Bureau. The bureau was established by the Dodd–Frank Wall Street Reform and Consumer Protection Act signed into law by President Obama in July 2010. For the first year after the bill's signing, Warren worked on implementation of the bureau as a Special Assistant to the President in anticipation of the agency's formal opening. While liberal groups and consumer advocacy groups pushed for Obama to nominate Warren as the agency's permanent director, Warren was strongly opposed by financial institutions which had criticized Warren as overly aggressive in pursuing regulations, and by the Republican members of Congress. In January 2012, over the objections of Republican senators, President Obama appointed former Ohio Attorney General Richard Cordray as the Bureau's director in a "recess appointment".

Thursday, November 1, 2012

There are no national solutions to the problems of the world, but some national solutions are more important than others. All of us are affected by what will happen on Tuesday 6th in the USA's presidential election. In past elections, I used to follow predictions from political stock markets such as Intrade, and I was always curious to see who was The Economist endorsing. Good news from these two sides: Intrade gives a probability today of more than 66% of an Obama victory and The Economist has just announced it prefers Obama to win. This time, I have also been following the blog Five Thirty Eight, written by Nate Silver, who uses a statistical model to predict the result based on national and state data. The current prediction is that Obama has a probability of victory of 79%, with a clear victory in the electoral college and a slight majority in the popular vote. Of course, Romney may still win, and the election will be closer than four years ago. As Silver explains, when a team is winning a match by a narrow margin when there are still a couple of minutes to play, it has a high chance of winning, but many things can happen. Decent readers (also, or perhaps especially, in Europe) should keep their fingers crossed.